China 2016: INTRODUCTION | CROSS CATEGORY TRENDS
Mobile transforms Chinese market, as brands face challenges of growth
MOBILE USE SEEMS AS NATURAL AND NECESSARY AS BREATHING
Mobile has become an integral part of everyday life for Chinese consumers. On mobile, they talk, text, shop, order food, hail taxis, book travel, trade stocks, pay for products and services, deposit money into their bank or transfer money to friends. These activities happen on mobile in other countries and regions, but not to the same extent. In most places mobile is an option; in China it seems autonomic. It is an expression of the Chinese Dream and a pathway to its fuller realization. About half of all e-commerce in China happens on mobile compared to just over a fifth in the US and around a third in the UK.
The implication for brands is clear: consumers are on smartphones at least two hours a day, according to Millward Brown’s AdReaction study, and mobile is the place to engage them. But it is also important for brands to understand why mobile is such a large phenomenon, how to best use mobile, and when mobile may not be the best medium. Numbers tell much of the story. Internet users in China reached 668 million in June 2015 and 549 million of those users, almost 90 percent, accessed the Internet on a mobile device.
In other words, the number of Internet users in China is more than twice the population of the US and almost the population of Europe, and most of those individuals are walking around with a smartphone.
These numbers alone would appeal to any brand marketer, but there is more. The total number of Internet users represents less than half of China’s population of over 1.3 billion. And penetration is relatively low in rural China, where the Internet users make up just over a quarter of China’s total Internet users. A big brand opportunity is about to become bigger.
NEVER A SIMPLE MEDIA MARKET,CHINA NOW IS MORE COMPLICATED
Like many national markets, China is not homogenous. But it is distinct in several ways. First, the population of over 1.3 billion is dispersed in cities and villages across a landmass almost the size of the US. Initially, it was sufcient to reach the rising middle class in the coastal cities. But now buying power, and interest in brands, is increasing throughout the country.
Second, many countries have a generation gap, a normal diference in attitudes between the young and their parents. In China, this diference is exaggerated because parents experienced a diferent China than the one in which their children grew up. Parents remember scarcity and limited access to western goods. Anyone over thirty has experienced relative abundance and overwhelming online shopping options.
Third, reaching these varied audiences – rural, urban, younger and older – is tricky. Smartphones are becoming ubiquitous, but TV remains the preferred medium for watching ad videos, especially in rural China. The only certainty is the primacy of digital, which now accounts for about half of all media spending, up from only 11 percent in 2010. The shift to digital will accelerate even more as the government drives its Internet+ agenda aimed at transforming the character of the economy from industrial China to connected China.
GOING GOING GLOBAL
BRANDS EMPHASIZE GLOBAL STATURERATHER THAN CHINESE PROVENANCE
For Traditional Chinese Medicine (TCM) products, being Chinese is the key product advantage, of course. But Chinese brands expanding internationally increasingly emphasize their global ambitions rather than their national provenance. This is often the case in the appliance and technology categories, which are accelerating their shift to global brand builders from their earlier role as Original Equipment Manufacturers (OEMs), makers of products that were marketed under western brand names.
Haier, the manufacturer of white goods and other appliances is in the process of acquiring the appliance division of General Electric. Hisense appliances are widely available in the US. Huawei sold 100 million branded smartphones in 2015, many of them in Europe. Smartphone maker ZTE sponsors five NBA teams in the US. It is 10 years since Lenovo purchased the IBM personal computer division, and two years since its purchase of Motorola Mobility from Google. Today, 68 percent of Lenovo revenue comes from outside China.
The international presence of Chinese brands includes other categories, such as cars, where export proceeds region by region, first to emerging markets in Southeast Asia, Africa or Latin America. The car brand Changan, which appears for the first time in the BrandZ™ China Top 100 this year, is expanding exports. The government of China is aggressively facilitating trade with initiatives like the One Belt, One Road to create a network of trading partners, a modern version of the Silk Road. In the meantime, Chinese Internet brands, like Alibaba and JD.com, and Chinese social networks like WeChat, are raising international awareness of, and access to, Chinese products.
Tencent, the Chinese Internet portal and gaming leader, is exporting its online games, trying to build a large and revenue-driving global audience. A Chinese conglomerate recently bought Brookstone, the US retailer of consumer electronics and gadgets. The brand will become another sales channel for Chinese brands, perhaps featuring niche products from Chinese start-ups like those producing smart watches to compete with Apple and Samsung.
STAGES OF GROWTH
GLOBAL AMBITION REQUIRES CLARITY OF BRAND IDENTITY
As a brand grows and pursues new opportunities it becomes important to periodically do an identity check, to see how much the brand has shifted from its original core idea or mission, and to what extent the evolved brand matches the needs and desires of existing and prospective customers.
In general, the more faceted a brand becomes, the more difcult it becomes to summarize and coherently communicate the brand idea. Companies like Alibaba and Tencent, which have built large platforms, or ecosystems, with many components, face this challenge of clearly articulating a unifying idea. It is a symptom of success.
As they manage brand portfolios in the virtual world, Alibaba and Tencent face some of the challenges that organizations like Unilever and P&G confront in the physical world. Global ambitions of the Internet giants add urgency because clarity is a prerequisite for success when introducing a brand to consumers outside of the home market.
CONSUMERS DESIRE OVERSEASBRANDS, BUT FOR NEW REASONS
Chinese consumers are purchasing international brands, but less for the status or bling and more for assurances of quality and safety at afordable prices. Status motivated purchasing when international brands first proliferated a decade ago. Consumers with newly obtained disposable income became giddy from the available choice. Status is still a purchase factor but brand provenance, history and storytelling are becoming more of a factor in brand choice, particularly in luxury.In addition, a lot of shopping shifted from the physical world to cyberspace, where, in part because of the government’s establishment of cross border e-commerce zones, foreign goods are available at lower prices with faster delivery, along with greater assurance that products are genuine, not fake.
This development is an opportunity for international brands to enter or expand throughout China by being present on any of the leading Internet marketplace sites. The increased availability of international brands is another reason for Chinese brands to continue to improve product quality and communicate Meaningful points of Diference.
VIRTUAL BRANDS SEEK PHYSICAL PRESENCE
The retail lexicon cannot keep up with the speed of change. A few years ago, omnichannel described the goal of being present in a consistent way everywhere and all the time. Then O2O required coordinating the ofine and the online brand manifestations so that all customer engagements happened seamlessly. Bricks and mortar brands drove much of this conversation as they formed their online counter lives. More recently, the dynamic is also working in reverse, as Internet brands attempt to build up their ofine presence. E-commerce giant Alibaba purchased almost a 20 percent stake in Suning, the consumer electronics retailer that operates about 1,600 stores. The trend goes beyond China, which is relatively advanced in harmonizing brand activity in the physical and virtual worlds. Amazon opened its first bricks and mortar bookstore in November 2015, in Seattle. But in China, compared with the US, the potential for new physical retail space is much greater.
BIRTHING A BRAND BEGINS A LIFETIME OF RESPONSIBILITY
After giving birth to a strong brand, the complementary challenge is protecting it. Brands are vulnerable. As they grew, they attract more attention, particularly on social media. Several of China’s most valuable and influential brands experienced these growing pains. Government regulator charges of counterfeit merchandise on Taobao hurt the reputation of the Alibaba online market. Baidu, China’s largest search engine, faced allegations of fraudulent activity on its site. Online travel leader Ctrip blamed vendor partners for incidents involving fraudulent tickets. Corporate reputation has declined in the consumer mind, as measured by RepZ, a BrandZ™ metric. There is no substitute for integrity. But in an imperfect world, with the intense radar of social media, building, protecting, and repairing brand reputation sometimes requires the intervention of communications experts.